Upside's mid-year favorites: 'Perfect stocks?'

"Our Quadrix rating system grades stocks on nearly 100 variables in six categories — Momentum, Value, Quality, Financial Strength, Earnings Estimates, and Performance," says Richard Moroney.

In his Upside Stocks, he says, "Everything we do is designed to find the 'perfect stock,' with a solid track record, bright growth prospects, strong finances, and a discount valuation." Here, he offers some mid-year favorites.

"Quadrix is our first screen, but we always take a closer look to see if stocks are being scored accurately. Because all rating systems tend to be backward-looking, we also consider company and industry prospects to determine if the bullish story being told by Quadrix is ancient history.

"Because of strength in energy and infrastructure end markets, EMCOR (NYSE: EME), a provider of mechanical and electrical construction services, seems capable of reaching $36 to $40 in the next 12 months.

"Sales have grown in four of the last five years, while per-share earnings have increased in each of the last four years. Revenue grew at a 12% annual rate over the last 10 years, and 8% over the last five. Per-share earnings have grown an annualized 24% over the last 10 years, and 13% over the last five.

"Sales have increased for seven straight quarters, with double-digit growth in the last five. On June 25, EMCOR boosted its 2008 guidance, citing “continuing indications of strong demand.” The company now expects 19% to 30% per-share profit growth and 15% to 18% sales growth.

"EMCOR is cheaper on most measures than other stocks in its industry. The trailing P/E ratio is 13, versus 15 for the capital-goods group. Over the last three, five, and 10 years, The price/free-cash-flow ratio of 7.4 is lower than 85% of U.S. stocks.

"Gardner Denver (NYSE: GDI), a maker of pumps, compressors, and fluid-transfer products, seems capable of gaining 20% to 30% over the next 12 months. The company has delivered at least five straight years of higher per-share earnings and sales, with double-digit growth in both categories for the last four years.

"In each of the last eight quarters, the company has posted double-digit sales and earnings growth. The last four quarters have ranged between 10% and 16% growth in sales, with 19% to 46% growth in per-share earnings.

"Gardner Denver has exceeded estimates in seven of the last eight quarters. In April, the company said orders were growing despite economic weakness. While industrial demand may slow, demand from the energy sector is likely to remain robust.

"Over the last three months, consensus per-share profit estimates have risen 13% for 2008 and 20% for 2009. The P/E ratio of 15 compares favorably to the industry average of 16. The stock also sells at a discount to its own three- , five- , and 10-year average P/E ratios.

"Hornbeck Offshore (NYSE: HOS) provides oceangoing supply vessels to the oil and gas industry. With strength in underwater exploration and production likely to continue, the stock seems capable of gaining 25% to 35% over the next 12 months. Hornbeck is being upgraded to a Best Buy.

"Sales have shown double-digit growth for five straight years, and per-share earnings growth has ranged from 30% to 162% since the stock began trading in 2004. Revenue has grown for eight straight quarters, including seven with double-digit growth. Per-share earnings growth has exceeded 12% for eight straight quarters.

"After Hornbeck reiterated in May its somewhat conservative guidance for 2008, several analysts trimmed profit estimates. But estimates for 2009 have been rising, and the Quadrix Earnings Estimates score has rebounded to 93.

"With a trailing P/E of 15, the company is cheaper than the energy sector (average P/E of 17) and the oil and gas equipment and services group (average P/E of 19). Hornbeck’s P/E is well below its own five-year average near 23."